Monday, October 27, 2008

The graduated income tax, which has been imposed on American citizens since the Sixteenth Amendment was ratified in 1913, has advantages and disadvantages. Economists and policymakers can argue about it in a rational and civil manner.

As for myself, I believe the tax code is too complex and it is used as much for social engineering as it is for revenue raising. The only legitimate use for a tax is to raise money to provide government services. It should not be used to nudge personal behavior in one direction or another, or to pick winners and losers among businesses, or to reward a favored group over against a disfavored group.

Let me add that those who favor the graduated income tax can make intelligent arguments on its behalf, even if I disagree with their conclusions.

But sometimes one of those supporters of the income tax says something so stupid that they deserve to be called out on it.

One example of this can be found in today's Arizona Daily Star, a newspaper published in Tucson.

In a guest article submitted by Sheila Tobias, identified as "an author and educator in Tucson," the argument for making richer people pay a larger proportion of their income in taxes is buttressed by this:

Since when does the hoarding of wealth by individuals, rather than jobs creation, do more to "grow the economy?"

Hoarding?

Tobias must have got her economic education from editorial cartoons of the 1930s, showing wealthy people stuffing their money into mattresses or burying it in the backyard.

Doesn't she know that wealth cannot be hoarded -- unless it's hidden in that cartoonish manner -- it can only be invested.

Either the money is put into bank accounts, where it is made available for loans (mortgages, car loans, small business loans), or it is put into investment accounts (buying stock, building businesses, and, yes, creating jobs). It does not sit idle.

Again, it will be like a man going on a journey, who called his servants and entrusted his property to them. To one he gave five talents of money, to another two talents, and to another one talent, each according to his ability. Then he went on his journey. The man who had received the five talents went at once and put his money to work and gained five more. So also, the one with the two talents gained two more. But the man who had received the one talent went off, dug a hole in the ground and hid his master's money.

After a long time the master of those servants returned and settled accounts with them. The man who had received the five talents brought the other five. ‘Master,’ he said, ‘you entrusted me with five talents. See, I have gained five more.’

His master replied, ‘Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master's happiness!’

The man with the two talents also came. ‘Master,’ he said, ‘you entrusted me with two talents; see, I have gained two more.’

His master replied, ‘Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master's happiness!

Then the man who had received the one talent came. ‘Master,’ he said, ‘I knew that you are a hard man, harvesting where you have not sown and gathering where you have not scattered seed. So I was afraid and went out and hid your talent in the ground. See, here is what belongs to you.’

His master replied, ‘You wicked, lazy servant! So you knew that I harvest where I have not sown and gather where I have not scattered seed? Well then, you should have put my money on deposit with the bankers, so that when I returned I would have received it back with interest.

Take the talent from him and give it to the one who has the ten talents. For everyone who has will be given more, and he will have an abundance. Whoever does not have, even what he has will be taken from him. And throw that worthless servant outside, into the darkness, where there will be weeping and gnashing of teeth.’

To Sheila Tobias, rich people are like that "wicked, lazy servant" when in fact the opposite is true -- those who are productive and take risks earn more money than those who are greedy and risk-averse.

I certainly hope that, as "an educator," Ms. Tobias is not teaching her students anything about economics. If she is, they will turn out as ignorant as she is.